And the Kior letter to shareholders starts out in the usual way, asking shareholders to make sure to vote:

Your vote is important. Whether or not you plan to attend the meeting, we hope that you will vote as soon as possible.

But then a few pages into the SEC filing you get into the funny thing about Kior. It’s dominated by its investor, the venture firm run by Vinod Khosla, Khosla Ventures, which owns 80.5 percent of the total voting power. It’s officially a “controlled company” under The Nasdaq Global Select Market corporate governance standards.

Most of that voting control is through its 46.2 million class B shares (which are equal to ten votes per share). Class A shares only get one vote per share. No other entities own even close to that amount of class B shares — they’re like those invincibility stars on Super Mario: you got some of those and no one can touch you.

Scroll down a few pages and it says:

The vote of the shares held by affiliates of Khosla Ventures is sufficient to determine the outcome of all of the proposals to be voted on at the annual meeting.

Well, that’s that. Quick, get your votes in!

Check out my long opus on Kior and the perils of cleantech investing from about a year ago: The perils of cleantech investing: KiOR & the long term, high risk view. They’ve seemed to have hit some milestones recently. Kior makes a biocrude from grass, wood and plant waste using a thermochemical process that’s been used in the oil industry for decades.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Defining success for cleantech companies
• Defining success for cleantech companies

A couple weeks back cellulosic ethanol hopeful Mascoma quietly pulled its IPO after it had filed to go public. It’s safe to say that the abysmal performance of the 2011 crop of biofuels IPOs, that included Solazyme, Gevo and Kior, did not help Mascoma’s chances of finding public money. Gevo’s been a particular stinker, losing over 80 percent of its value, though Kior is down almost 70 percent from its IPO pricing.

My colleague Katie Fehrenbacher has analyzed the various issues related to high levels of risk and companies like Kior. With no revenue at IPO and no significant revenue on the horizon until the company built a capital intensive production facility costing tens of millions, Kior has carried a significant level of risk for a publicly traded company.

I mention the high risk world of biofuel investing and the fact that these companies went to public markets seeking capital because two years after the 2011 class of biofuels IPOs, cleantech investors find themselves in challenges situations where it’s difficult get IPOs done. And without those investors having access to liquidity and returns, late stage companies are having harder times finding capital to push through the commercialization phase of growth.

What happened?

The IPO market all but dried up with just three cleantech IPOs in 2012 and overall cleantech VC dropped by a third. IPOs are critical for venture investors to find liquidity and produce returns, as is significant M&A activity. But IPOs that significantly underperform the market make it harder for other companies in that sector to attract VC or to go public themselves.

Of greatest concern is that as financing for cleantech gets tight, the brightest startups will struggle to find early stage capital and those companies nearing the path to commercialization will find it hard to find scaling capital.

Many of these financing issues are cleantech specific. It’s worth looking at Matthew Nordan’s analysis of the state of cleantech investing but some of the key points he makes are:

• 1) The current value of cleantech funds is about 90 percent of what LPs put into those cleantech specific funds, versus about 123 percent for the overall venture sector.
• 2) The number of cleantech IPOs is lagging and their aftermarket performance is poor.
• 3) Cleantech companies tend to take longer to IPO or get acquired and require more capital to get to profitability than say, internet startups.

IPOs and long term investors

So what to do about the problem? I spoke recently with Mona Defrawi, the founder of Equidity, a startup that has built a platform to connect promising later stage startups with buy side investors. These are the investors who would typically buy IPOs, but who now are getting access to data on later stage startups so they can consider investing in growth companies a couple years pre-IPO at attractive valuations while giving up some liquidity by doing private deals.

Defrawi has some strong opinions about how the overall IPO system is broken, much of which she blames on decimalization, short term trading, Sarbanes Oxley, and the inability to have stable markets post IPOs because there aren’t enough long term investors sticking by companies through an IPO. The net result is a world where it takes close to ten years to go public versus about 5 years in the 90s, something that has a rough impact on venture capital firms that need liquidity and need to show LPs a return. Defrawi put together an infographic to detail her view of the IPO market and to promote Equidity:

Equidity launched its list of 135 GrowthSTARS in February. These are companies that Equidity wants to be the foundation of its list of companies that it can connect with long term investors pre-IPO. Scanning the list, it included a few cleantech names such as Bloom Energy, Opower, oDesk, and BrightSource. Some of the companies on the list, like Opower, I wouldn’t think would have any trouble finding capital given its continued success. Though other names like BrightSource, which specifically has had to ditch its IPO plans as it struggles with the competitive move to solar PV technology, may need capital to survive before it ever reconsiders a public offering.

But regardless of how attractive the various companies on Equidity’s list are, the real point of interest is that Equidity wants to offer up these companies to buy side investors before the IPO, particularly in a world where venture capital has grown somewhat tight.

There are other efforts to increase liquidity pre-IPO from the likes of SecondMarket and AngelList. Equidity is another such effort though it’s trying to do so at a much larger investment size and not with a focus on making a market pre-IPO but on bringing the big public investors into private deals pre-IPO.

And if Equidity is one small step toward making it easier for cleantech companies to get later stage capital and attract investors that will stick with the company post-IPO, that could aid a recovery in the upstream venture capital that’s needed to finance the next generation of cleantech startups.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Defining success for cleantech companies
• Defining success for cleantech companies

On Monday, KiOR, which was largely funded by Khosla Ventures before it went public, announced in its fourth quarter and annual year 2012 earnings that it has now shipped its first cellulosic diesel product from its factory in Columbus, Mississippi. The factory, which could make some 3 to 5 million gallons this year, converts wood chips into a diesel fuel that the company says can be used in current fossil fuel infrastructure.

Last week startup ZeaChem said that it started production of cellulosic chemicals and ethanol at a demonstration factory in Boardman, Oregon, which can produce about 250,000 gallons per year. Late last year, ag giant DuPont started construction on a cellulosic ethanol factory in Nevada, Iowa, which when completed in 2014 could produce 30 million gallons of fuel from corn stalks and leaves. For comparison sake, these are very small volumes in the grand scheme of the fossil fuel industry — the U.S. consumes some hundreds of billions of gallons of gas per year.

Regardless, these are signs of progress for an industry that has perpetually missed milestones and overestimated the amount of time it would take to move into commercial production. But these milestones are still steps on the way to a company producing these advanced biofuels at a scale and cost that is competitive with gasoline.

According to Bloomberg’s energy research arm New Energy Finance, ethanol made from plant waste could cost the same to produce as corn-based ethanol by 2016. Currently cellulosic ethanol costs 94 cents a liter to produce, or about 40 percent more than ethanol made from corn, says Bloomberg.

Despite these milestones, there are many more steps ahead. KiOR was expecting to ship its first cellulosic diesel late last year, and in the company’s earnings call CEO Fred Cannon apologized to investors for missing that target due to “unexpected startup issues.” KiOR also now needs to operate that factory at a steady state for another 9 months, and also buildout another factory in Natchez, Mississippi, which is supposed to produce three times what its Columbus facility will produce.

KiOR needs to finance the Natchez facility, and on that note, said on Monday that Khosla Ventures is willing to offer it another $50 million commitment and amend its previous loan agreement. ZeaChem is also looking to buildout a 25 million gallon factory per year next to its demonstration factory. DuPont is one of the company’s with the deepest pockets that is moving ahead and has been working on next-gen biofuels for a decade. Still, the process has taken DuPont longer than it had expected, the CEO told me recently.

But not everyone thinks building large biofuel factories is a smart move. Late last year oil giant BP cancelled its plans to build a next-gen biofuel factory in the U.S.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Financing the next generation of great cleantech ideas
• Opportunities for the future of batteries

We’ve been covering this roller coaster ride, and Kleiner’s plays for years. Back in the summer of 2010, I first wrote “Greentech investing: not working for most;” and in early 2012 I wrote pieces on “the perils of cleantech investing,” as well as “We can thank Moore’s Law for the cleantech VC bust.” Last year I wrote “Kleiner Perkins web woes, add greentech,” and Kleiner is not so great at investing in auto tech.

The article does have a pretty amazing tidbit in there, that Doerr dipped into his own pocket for the $2.5 million that Miasole needed to make payroll before it was sold to Hanergy. But here are 5 things I think the article missed:

1). The long-term larger risk, but bigger payoff: A lot of the manufacturing and infrastructure-based cleantech startups have been taking longer to mature and reach commercialization than their digital peers, and they’ve also needed more money. But when some of these rare companies actually do reach scale and are successful, they could be massive players with huge markets. It’s just a different kind of betting — think putting a $100 on 22 on the roulette wheel, versus $5 on a hand of poker. A combination of the two — a small amount of the high risk investments, with a larger amount of the low risk investments — could be a good play.

That was one of the reasons why it seems like investor Vinod Khosla is still investing in cleantech startups. Khosla Ventures’ biocrude portfolio company KiOR — which the firm mostly owns – has a potential market that is no less than an opportunity to displace oil in transportation. Imagine if a venture investor owned a big chunk of Exxon Mobil.

2). The bigger trend of population growth and resource management: Many venture capitalists might be steering away from the cleantech investing style of years prior, but the overall global trends that originally drove these early cleantech investments will only continue to grow. These planetary trends aren’t wrong, it’s just that a bunch of the investments that were made weren’t that smart. The world will have 9 billion people by 2050, and energy, water and food will have to be managed much more carefully. The climate is also changing, because too many people are using too many fossil fuel-based resources. Technologies — including IT — that manage these resources and replace them with more sustainable ones will have large markets, particularly in developing countries.

3). Beyond venture: For many cases, the cleantech investing model isn’t a fit for venture capital. But that doesn’t mean it’s not a good fit for other types of investors like private equity and project finance. Google has put a billion dollars into clean power projects, because those can deliver relatively safe and decent returns. Corporate investors — like GE or NRG Energy — are putting money into cleantech startups because it’s more than just a return, it’s a strategic investment. Cleantech innovation will also continue to come out of university and government labs and will be spurred along by government support of basic science research. Does cleantech innovation need a cleantech VC bubble to start changing the world?

4). Kleiner’s portfolio is more nuanced: The Reuters story accurately pointed out Kleiner’s struggling cleantech companies like Fisker, Miasole, Amonix, and others. And also rightly pointed out how the few cleantech companies it backed that went public — like Amyris and Enphase Energy — are now trading below their IPO prices. But the article didn’t mention the exit of solar thermal company Ausra, and also didn’t name some of the more successful and growing companies in Kleiner’s portfolio like Opower, Clean Power Finance, Enlighted, Nest, and RecycleBank. Opower is the energy software company to beat these days.

Honeywell & Opower’s iPad smart thermostat app

5). Cleanweb: See a trend in Kleiner’s more successful and growing cleantech startups? They’re mostly software and digital based. The latest trend in cleantech VC investing is the so-called “clean web,” or using social, mobile, and software to management energy and other resources. Some of these companies are pretty interesting and inspiring, like crowd-funding solar site Solar Mosaic.

Finally, as a side note, it’s now in vogue to point out how cleantech investors have lost money. Many have. But I think investors that have paved the way for world-changing innovation, and taken large risks to do so, should in part be lauded.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Defining success for cleantech companies
• Defining success for cleantech companies

Technologies that can provide new types of cleaner and more efficient resources — from energy to food to water — are the underpinnings of the cleantech trend, and the emerging markets could be a massive customers of these technologies. As Khosla has said written recently, he remains committed to cleantech opportunities, and particularly ones that can be cheap enough to be mainstream in “Chindia.”

But it’s not just about cleantech companies, Khosla’s mobile and web firms are looking at ways to expand into developing markets, too. Brazil is undergoing a massive e-commerce boom, while India’s mobile market explodes, and China is emerging as the leading market for a lot of next-gen tech these days. Rice says in a release that she’ll help Khosla companies “navigate the tricky waters of political, policy, and regulatory issues around the world.”

Venture firms have a long history of partnering with high profile former politicians, to help grease the wheels of the regulatory frameworks. Kleiner Perkins has both Al Gore and Colin Powell. Lux Capital brought on R James Woolsey. Khosla also has Tony Blair as an advisor.

Rice is no stranger to working with private companies. Before she was Secretary of State, she sat on Chevron’s board, and is also a director at C3, the carbon software tool backed by Thomas Siebel. While she was Secretary of State, she played a major role in how the U.S. responded to the Kyoto negotiations.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Financing the next generation of great cleantech ideas
• Opportunities for the future of batteries

KiOR has developed technology that allows it to convert biomass (plants and bio waste) into a bio substitute for crude oil. The Houston, Texas-based company emerged in late 2007 as a joint venture between Khosla Ventures and Netherlands-based biofuel startup BIOeCON. Khosla Ventures provided the early rounds of funding and BIOeCON provided the intellectual property for its “biomass catalytic cracking process,” a thermochemical process that’s been used in the oil industry for decades and which turns out can also produce biocrude from grass, wood and plant waste.

I attended an event where Cannon described KiOR’s technology as being able to do in seconds what has taken millions of years in nature (the natural process of how biomass has been crunched into oil). Cannon said the company’s catalyst — a fine white powder that he showed to me in a tiny see-through vial after his talk — can turn any bio feedstock into a liquid biocrude that has a 92 percent lower carbon emissions footprint than fossil-fuel based crudes and which is supposed to be able to be dropped into the current oil infrastructure. Update: KiOR now says the full lifecycle greenhouse gas profile of their gasoline and diesel fuels reduces emissions by over 80 percent compared to fossil fuel equivalents, instead of the 92 percent mentioned above and told to me by Cannon in 2010.

But, as anyone that’s followed the next-gen biofuel industry knows, many of these types of technologies have suffered delays and setbacks. A company called Range Fuels, also backed by Khosla Ventures, went bankrupt in late 2011. And BP recently cancelled a planned cellulosic ethanol plant, which would have been one of the world’s first commercial scale cellulosic ethanol plants.

So the news that KiOR is on track is a rare spot of good news from these types of firms. KiOR’s Columbus plant, at 11 13 million gallons per year, is smaller than the standard corn-based ethanol plants in the U.S., points out MIT Tech Review. But KiOR also plans a larger commercial production facility in Natchez, Mississippi, which is supposed to produce three times what the Columbus plant can produce.

Scaling up these two plans is really capital intensive, particularly because the company has no revenue. In January KiOR announced that it raised a $75 million loan from existing investors Alberta Investment Management, a fund that manages billions on behalf of the province of Alberta, Canada, and Khosla Ventures. KiOR is still in an early stage of its life. It’s not bringing in any revenue (yet), and had a net loss of $27 million for the third quarter of 2012. KiOR’s stock dropped 6.5 percent this morning to $6.91, seemingly on uncertainties about biofuel incentives in the U.S.

Read my detailed article on KiOR from earlier this year.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Financing the next generation of great cleantech ideas
• Opportunities for the future of batteries

The news caused the company’s stock to jump up temporarily. In morning trading KiOR bounced up to $9 per share, and is now falling back down closer to $7.50 — $7.50 is about half of the price of KiOR’s stock at its IPO debut at $15 in June 2011.

KiOR started building the Columbus facility in the first quarter of 2011. KiOR also has plans for a larger commercial production facility in Newton Natchez, Mississippi (KiOR recently switched this plant from Newton to Natchez).

Scaling up these two plans is really capital intensive, particularly because the company has no revenues coming in. KiOR reported a net loss of $22.97 million for the second quarter, on no revenues. In January KiOR announced it’d raised a $75 million loan from existing investors Alberta Investment Management, a fund that manages billions on behalf of the province of Alberta, Canada, and Khosla Ventures.

KiOR is slowly attempting to cross what investors and entrepreneurs call “the Valley of death.” Basically when a company tries to scale up a technology that looks good but isn’t yet being produced at a commercial scale. The risks are high, but if the company can achieve what it’s promised, it could make its shareholders Khosla Ventures, Artis Capital and Alberta Investment Management very wealthy. If it works.

Check out my (long) essay on KiOR here: The perils of cleantech investing: KiOR & the long term high risk view.

I’ll listen to the playback of the earnings call shortly, and update this if need be.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Financing the next generation of great cleantech ideas
• Opportunities for the future of batteries

KiOR says it lost $64.06 million for the full year in 2011 (a larger loss than the $45.93 million in 2010) , and lost $14.94 million for the fourth quarter (a larger loss than $9.67 million for Q4 2010). The company isn’t generating revenues as it’s in a pre-commercial state, and the earnings weren’t a surprise to anyone that’s been following the company. KiOR expects to to incur operating losses through at least 2013.

But KiOR is making progress on the construction of its plant in Columbus, Mississippi, and that plant is 75 percent complete, said KiOR in its earnings statement. The company’s goal is to start production in the second half of the year at the Columbus factory, and during the fourth quarter of 2011 spent $44.2 million on construction of the Columbus plant.

Building a biofuel factory takes significant capital. In January KiOR raised a new $75 million loan from existing investors Alberta Investment Management, a fund that manages billions on behalf of the province of Alberta, Canada, and Khosla Ventures, the venture firm that was an investor early on and now has voting and investment control over more than 60 percent of the outstanding shares of Class A common stock.

KiOR started building the initial stage of its commercial production facility in Columbus, Miss., in the first quarter of 2011. KiOR plans to start building its larger standard commercial production facilities in the second half of 2012, in Newton, Miss., and this size of facility is expected to cost around $350 million.

Check out my extensive piece on KiOR I published earlier this year: the perils of cleantech investing: KiOR and the long-term, high-risk view. KiOR recently closed at $11.60, down from its IPO debut at $15 per share.

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• The perils of cleantech investing: KiOR and the long-term, high-risk view
• Financing the next generation of great cleantech ideas
• Opportunities for the future of batteries

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Next-gen biofuel company KiOR is a prime example of this long term, high risk phenomenon. In 2011, then four-year-old KiOR was one of the few stand-out examples of what could be possible for a cleantech exit. While the IPO market for most cleantech companies was truly “weak” in 2011, as the researchers at the Cleantech Group put it (there were about half the number of cleantech IPOs in 2011 as 2010) KiOR held an IPO in the summer of 2011, which was a blockbuster win for the company’s investors back then on paper.

Valley venture firm Khosla Ventures, San Francisco hedge fund Artis Capital Management, and Aberta-based fund Alberta Investment Management were some of the largest shareholders at the time of KiOR’s IPO. Khosla Ventures itself held around 72 percent of the voting power of KiOR at the time of the IPO. Khosla Ventures founder and Partner Vinod Khosla told the Economic Times of India in November 2011 — 5 months after the IPO — that KiOR and its IPO represented a 50 times return on the firm’s investment. A few months earlier, in September 2011, Khosla told a conference audience that his firm’s biofuel portfolio contains about $1 billion in “liquid profits” – those are tradeable, public shares – thanks to several of the biofuel companies that his firm backed that had gone public in 2010 and 2011.

Having successes like these to point to can make it that much easier for a venture firm to raise future funds. Khosla Ventures announced that it had raised another $1 billion fund in October 2011, and also announced that it wasn’t changing its strategy away from investing in early stage cleantech startups. I’ve also heard that bankers for KiOR’s IPO have used KiOR as an example of the success of the biofuel IPO market.

And that’s all well and good. But the reality is that the liquidity of KiOR’s IPO could be locked up for a long time, potentially many years down the road, until — and if — the company scales up and meets expectations. Next-gen biofuel companies can be very risky in general (look what happened to Range Fuels — more on that firm later); KiOR is currently in a pre-commercial stage (it makes no revenues or profits yet); the company will require more funding to scale up its bio-crude production (which could involve issuing more shares and diluting investors); and in the short term, the company’s stock could tank if the investors sell a substantial amount of their shares. How does the company’s early prime investors eventually get the money out? They wait and hope.

The promise of KiOR

KiOR has developed a technology that allows it to convert biomass into a bio substitute for crude oil. The Houston,Texas-based company emerged in late 2007 as a joint venture between Khosla Ventures and Netherlands-based biofuel startup BIOeCON. Khosla Ventures provided the early rounds of funding and BIOeCON provided the intellectual property for its “biomass catalytic cracking process,” a thermochemical process that’s been used in the oil industry for decades and which turns out can also produce biocrude from grass, wood and plant waste.

In the Spring of 2010, at Khosla Venture’s Limited Partners meeting, which the press was allowed to attend, KiOR’s President Fred Cannon described KiOR’s technology as being able to crunch into seconds the millions of years that it takes for nature to turn biomass into fossil fuels. Cannon said the company’s catalyst — a fine white powder that he showed to me in a tiny see-through vial after his talk — can turn any bio feedstock into a liquid biocrude that has a 92 percent lower carbon emissions footprint than fossil-fuel based crudes and which is supposed to be able to be dropped into the current oil infrastructure.

The potential market is no less than to displace oil for transportation. Khosla Ventures partner Vinod Khosla was confident enough in the company in the spring of 2010 that he said at the LP event that KiOR’s competitors aren’t other biofuel companies, but rather, the heads of major oil exporting nations like Venezuela President Hugo Chavez and Iranian President Mahmoud Ahmadinejad. KiOR even impressed former Secretary of State Condoleezza Rice to the extent that she joined KiOR’s board in the Summer of 2011.

KiOR’s valuation

When KiOR went public at $15 per share in June 2011, not only was the company able to raise $137.4 million from the IPO to work on scaling up its biofuel technology, but Khosla Ventures ended up maintaining 74.8 percent (46.26 million shares) of KiOR’s Class B common stock and 23.9 percent (9.10 million) of KiOR’s class A common stock for a total of 55.36 million shares — making Khosla by far the largest shareholder. At the $15 per share IPO price, the share portion was worth $830 million. When KiOR’s shares later rose to $23.85 per share, that portion was worth $1.32 billion.

Artis, at the time of the IPO, owned 30.1 percent (11.45 million shares) of the Class A common stock. Over the three months following the IPO, Artis Capital Management also steadily bought up KiOR shares. And as of September 30, when Artis reported its holdings, it owned more than 14 million shares of KiOR, reported Down Jones Venture Wire last Thursday. (On a side note, I’ll mention that Pierre Lamond joined Khosla Ventures in 2009 from Sequoia Capital and is the father of David Lamond, an investor at Artis Capital. In addition Dow Jones Venture Wire reported last Thursday that David Lamond has now left Artis Capital).

Other large shareholders at the time of the IPO included Alberta Investment Management, a fund that manages billions on behalf of the province of Alberta, Canada, and which is also a limited partner in Khosla Ventures; the original founders and execs with BIOeCON also held substantial shares (It’s a bit controversial in the venture capital community to have a limited partner invest alongside the fund).

KiOR’s valuation, and the investors’ holdings, are based on the potential of the technology, not on revenues or earnings. KiOR has yet to generate any revenues, has accumulated a deficit of $115.4 million since inception, and expects to incur operating losses through at least 2013. The company won’t start generating revenues until at least the second half of 2012 assuming it finishes building its first initial-scale facility on time. Edward Schneider, an investor who has been shorting the KiOR stock, put it this way in a headline: “KiOR: $1.7B Market Cap With No Revenue.”

KiOR itself lays the issue out clearly in its latest quarterly report:

“The Company’s ultimate success is dependent upon the successful transition of the Company from primarily a research and development company to an operating company. There can be no assurance that the Company’s proprietary technologies will be successful on a commercial scale, that it will be successful in funding its long-term expansion plans or that it will be able to generate sufficient revenue in the future to sustain operations.”

Post 180-day lock up dip

KiOR’s stock price and value recently dropped over the past couple of weeks to $9.03 per share at the close of Wednesday’s market. That put those 55.36 million Khosla Ventures shares at a valuation of $510.42 million — about half of what they were at the height of the stock price in September. But still, pretty high, considering Khosla Ventures invested around $14 million into KiOR in its first rounds and then participated in KiOR’s two later rounds that totaled $95 million, and $55 million respectively.

The slight stock drop could be due to investors selling a bit after the first 180-day lock-up period expired in late December. KiOR Director (Amyris CEO) John Melo and Director Ralph Alexander have both sold shares in recent weeks.

However, Artis and Khosla Ventures don’t seem to be selling. Artis spokesperson told Dow Jones Venture Wire last week that Artis hadn’t sold any of its KiOR shares. In addition 46.26 million of Khosla Venture’s shares (out of the Khosla Ventures II fund) are subject to a lock-up period of 360 days, not the standard 180 days.

Big share, little float

Despite the recent dip in stock price, KiOR has actually maintained its stock fairly well over the last 6 months — it’s fared better than other pre-commercial, newly public, next-gen biofuel companies. A couple reasons for this seem to be because 1) the float was so small 2) the company’s shares were owned by so few, and 3) hedge fund Artis Capital Management routinely bought up small amounts of shares on a daily and weekly basis in the three months post-IPO.

At the time of the IPO, Khosla Ventures controlled so much of KiOR that the company was considered a “controlled company” (by Nasdaq standards) and that’s likely why bankers had  Khosla Ventures agree not to sell a big portion of the shares for at least 360 days. If such a large amount of the shares were sold early on, the stock would likely crash.

There are a lot of reasons for floating only a small amount of shares in an IPO. The small float question has recently become a hot topic in the tech industry because Groupon only floated 4.7 percent of its stock, which Business Week called “the lowest Internet float in [a] decade.” Many in Groupon’s case think it helped prop up a higher valuation for the company.

It could have had the same effect for KiOR. And at the end of the day when the float is so small, it’s hard to know the value of the company, and it’s difficult to have a true market.

While other early stage, next-gen biofuel companies’ stocks have seen a steady decline over the past six months, KiOR (until very recently) managed to mostly maintain (and grow) its share price. When I wrote this article in November, the share prices of Gevo, Amyris and Solazyme — all pre-large-scale production next-gen biofuel firms — had fallen considerably, while KiOR maintained its IPO price of around $15 per share until late December.

KiOR hadn’t reached any particular milestones that would explain why it was moving against the grain. Instead, the company had a couple less-than-positive blips, such as the recent resignations of both its President Joseph Cappello on October 6, 2011, and its Chief Operating Officer William Coates on September 9, 2011.

So now what?

The catch-22 for Khosla Ventures, Artis Capital and Alberta Investment Management is that if they cash out of the company in any meaningful way early on, it could tank the stock. Khosla Ventures could have distributed its shares to its limited partners already, which means that they now belong to Khosla Ventures limited partners — some of Khosla Venture’s LPs reportedly include CalPERs, Bill Gates, and Alberta Investment Management. I’ve reached out to both Khosla Ventures and KiOR on this, but haven’t heard back.

Likely Khosla Ventures and Artis Capital are in it for the long haul and will sit and wait for the company to potentially prove itself out over the coming years — or it won’t. KiOR started building the initial stage of its commercial production facility in Columbus, Mississippi in the first quarter of 2011 and plans to finish the facility by the first half of 2012. According to KiOR’s latest quarterly statement, that first project will require another $114 million. KiOR plans to start building its larger standard commercial production facilities in the second half of 2012, with the first one in Newton, Mississippi. This size of facility is expected to cost around $350 million.

Goldman Sachs analyst Mark Wienkes writes that: “The key challenge remains the capital intensity of the scale-up, with KiOR needing about $450 million of additional equity in 2012 to 2013 to support the contemplated plant roll-out.” Wienkes writes that in 2012 he is looking for evidence of the scale-up such as KiOR raising debt financing for the Newton, Mississippi plant, completion of the Columbus plant in the second quarter of 2012, the start of biocrude production at Columbus in the third quarter of 2012, and a follow-on equity round in the second quarter of 2012.

If KiOR is able to make it through this scale-up period — which industry-watchers often call “the valley of death” phase — the company could one day turn into a massive oil-replacing giant, with its shares making Khosla Ventures, Artis and Alberta hundreds of millions, if not billions. Imagine owning a big chunk of the IP and original shares of Exxon.

Next-gen biofuels

But then there’s the reality of the next-gen biofuel market out there, too. There has yet to be a single next-generation biofuel company that has been able to produce a high volume of low cost biofuel that can compete with the oil industry. And there have been a lot of failures.

Last month the Wall Street Journal wrote how the Environmental Protection Agency has now projected that just a very tiny fraction — less than one-tenth of 1 percent — of the biofuels that are required by a congressional target to be used in the U.S. in 2012 will come from advanced biofuels. That’s in contrast to a congressional target that advanced biofuels are supposed to account for more than 3 percent of the total in 2012.

One of the more high profile biofuel companies that failed to meet expectations has been Range Fuels, which was a company backed early on by Khosla Ventures. Range Fuels raised hundreds of millions of dollars including a $76 million grant from the Department of Energy and an $80 million loan guarantee from the U.S. Department of Agriculture. Despite a lot of fanfare, last year the company shut its plant down, laid off its staff, and recently sold its assets to another Khosla Ventures backed biofuel company called LanzaTech.

Another company called Cello Energy, which was eventually hit with fraud allegations and went bankrupt in 2010, was originally thought to be able to produce 70 million of the EPA’s requirements for advanced biofuels. It produced none. Khosla Ventures also at one point had economic interests involved with Cello Energy.

For both Cello Energy and Range Fuels the problem was the technology just didn’t work as expected. Will KiOR’s pass muster when it hits commercial scale, and deliver its investors the long term value that they are hoping for? As the cliche goes, we’ll have to wait and see.

Many analysts don’t watch this stock, as it’s considered too small, so don’t expect to see much attention on KiOR until it scales up. But the IPO and post-IPO processes are an indicator of how at least a couple of investors are trying to position themselves to try to make big money off of biofuels and cleantech investing, but to do so they’re making a risky bet, and they made it early on.

Image courtesy of jonrawlison, bfishadow,

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